As a start-up founder and entrepreneur, myself, defining the ultimate goal of the company was often difficult. Modern day entrepreneurship and investing has made the term Social Impact en vogue. I latched onto it early on and thought I knew exactly what it meant. A significant amount of present-day companies and investment funds claim to be based upon the idea, but what really is Social Impact?
The University of Michigan @Stephen M. Ross School of Business defines true social impact as “A Pressing Social Challenge” AND “Significant Positive Change”. They also say, “tackling symptoms of problems or trifling around the edges remains insufficient. For us to retain a potent and persuasive term, we must demand that social impact stands for a significant shift in society”.
If true social impact requires a significant shift in society, then How do start-ups and their investors balance the priority between rate of return on capital vs. the shift in society? Can both be achieved? Which is more important? How do we measure success?
My own start-up was meant to create a significant shift in education, specifically that of advancing opportunity for traditionally underserved student populations. I discovered this as a pressing need through my previous fifteen years in education reform and from my own personal battle. I grew up the youngest of five kids in my family, none of which who had attended college at that time, with parents who had both dropped out of high school. I felt a deep desire to create change and give back to those, who like me, didn’t excel in the traditional way.
In my initial meetings with investors, and throughout the time with the company, I was often dazed and confused as to whether our target was high end revenue or incremental social impact. For me, this created “blurred lines” as to who and what I was to serve. Would I be successful if I created a high level of return for the investors who had believed in me and my idea? or was the ultimate goal to create a significant, positive societal shift?
I am sure much more has been written on this topic from researchers and scholars alike who have deeper expertise than me. I am also sure there have been success stories from companies who have achieved both large revenue returns with significant social impact. Although, I can only speak from my own entrepreneurial experience and immersion in the investment world. I learned that return on capital, exponential growth and speed of scale far outweighs the focus on whether real social impact has occurred.
That makes sense when investors are putting in their own hard-earned money or have promised high level returns to their fund members. But here is the dilemma, “for us to retain a potent and persuasive term, we must demand that social impact stands for a significant shift in society”. @Stephen M. Ross School of Business.
Therefore, I believe the term Social Impact is overused and often a lever for entrepreneurs and investors alike to trick themselves and others to believe that social impact is their goal, when high return on capital is the bottom line.
As a first-time entrepreneur dealing with “blurred lines” and unresolved personal issues, I made significant mistakes that lead to a criminal conviction. I take full responsibility for that and acknowledge the negative affects my actions had on everyone involved.
At the same time, entrepreneurs and investors alike need clear alignment on their goals and fund managers need to be realistic and communicative of what equals success. Thus, un-blurring the lines in the dynamic of the entrepreneur, investor relationship.
The most imprtant question I am left with is, is it possible to create social impact that moves forward change and innovation for future generations, while losing funds in a failed attempt? Is that still considered success if the original goal was social impact?
The start-up world is a complicated place where questions like this need answered as soon as possible.